US, Canada reach an agreement on NAFTA rewrite, paving the way for an overhaul of the massive trade deal

Canadian Prime Minster Justin Trudeau and US President Donald Trump Jonathan Ernst/Reuters

Trade negotiators for the US and Canada are putting the finishing touches on a deal to reshape the 25-year-old North American Free Trade Agreement, known as NAFTA, Sunday evening. The agreement would seal the largest trade-deal rewrite of President Donald Trump’s tenure.

The agreement, which should come just hours before a deadline set by the Trump administration, will pave the way for a vote in Congress to approve the deal after more than a year of negotiations among the US, Canada, and Mexico over the trilateral agreement.

Negotiators for the US and Canada were able to overcome major sticking points between the two countries, including Canada’s protection of its dairy market and a system for settling trade disputes.

The dairy issue was a longtime target for Trump, who insisted that the high protective barriers for US dairy farmers trying to export to Canada were unfair.

On the other hand, Canada wanted to maintain Chapter 19, a key element of NAFTA that allowed countries to bring a grievance against another NAFTA member regarding unfair trade practices or tariffs. The procedure was essentially a fast-track version of the World Trade Organization’s dispute settlements but only applied to the three NAFTA members.

The agreement also comes after the US and Mexico came to a separate handshake deal that strengthened rules around auto production in August. The Trump administration repeatedly threatened to move forward with the bilateral deal, excluding Canada.

The new NAFTA deal also came on the last day before a Trump-imposed deadline to reach an agreement. Trump is renegotiating NAFTA under what is known as Trade Promotion Authority. While TPA gives Trump the ability to send a deal to Congress for a simple majority vote, it also includes a statutory 60 day notification period.

The timeline of the notification period has provided urgency to spearhead a NAFTA deal through Congress and onto the desk of Mexican President Enrique Peña Nieto before President-Elect Andrés Manuel López Obrador takes over in December. While López Obrador did have representatives present during the US-Mexico talks, there was concern about possible political upheaval around the changeover that could force more talks.

The deal appears to be a victory for both sides. On the one hand, Trump is able to fulfill a rewrite of a deal he once called the “worst trade deal ever made.” On the other, Canadian Prime Minister Justin Trudeau preserves a deal that Trump repeatedly threatened to scarp altogether.

In addition to opening the door for a NAFTA rewrite, the deal could also ease trade tensions between the US and Canada over Trump’s steel and aluminum tariffs.